Zootopia farms is consider replacing one off its tractors. The tractor in question was purchased 2 years ago at a cost of $47,000. The time of purchase the tractor was expected to have a 5000 dollar salvage value at the end of is six year life. The tractor has a current book value of 33,000. If sold today the company could get 26000 for the tractor. It costs $29,000 per year to operate the existing tractor. The new tractor would cost $50,000 and would only cost 21,000 to operate every year. The new tractor would depreciate on a straight-line basis over its 4 year useful life to its expected salvage value of $7,000. The company’s required rate of return is 14 percent. Ignore income tax Answer the fallowing 1) Should the company replace the tractor in question support your answer with NPV calculation 2) provide 2 nonfinancial options that the management of Zootopia must consider in making the decision to replace the tractor
Zootopia farms is consider replacing one off its tractors. The tractor in question was purchased 2 years ago at a cost of $47,000. The time of purchase the tractor was expected to have a 5000 dollar salvage value at the end of is six year life. The tractor has a current book value of 33,000. If sold today the company could get 26000 for the tractor. It costs $29,000 per year to operate the existing tractor. The new tractor would cost $50,000 and would only cost 21,000 to operate every year. The new tractor would
Answer the fallowing
1) Should the company replace the tractor in question support your answer with NPV calculation
2) provide 2 nonfinancial options that the management of Zootopia must consider in making the decision to replace the tractor.
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